Cryptocurrencies posted big losses on Friday, with Bitcoin just above $30,000 and threatening a record losing streak that ripped through cryptocurrency markets following the collapse of TerraUSD, a so-called stablecoin. Crypto assets have also been hurt by the widespread sale of risky investments amid concerns about high inflation and rising interest rates. Sentiment is particularly fragile as tokens that should be pegged to the dollar have stalled. Bitcoin, the largest cryptocurrency by total market value, managed to rally in the Asian session, trading at $30,335 by 0843 GMT. It has recovered somewhat from a 16-month low of around $25,400 set on Thursday.
But it remains well below the level of around $40,000 a week ago and is heading for a seventh straight weekly record loss unless weekend trade recovers. “I don’t think the worst is over,” said Scottie Siu, investment director at Axion Global Asset Management, a Hong Kong-based firm that operates a crypto index fund. “I think there will be more downside in the coming days. I think what we need to see is that open interest collapses a lot more, so speculators are really out, and then I think the market will stabilize.”
Crypto-related stocks have taken a hit, with shares in broker Coinbase stabilizing overnight but still down by half in just over a week ), which operate trading platforms and other crypto services, saw weekly falls of more than 20%.”Crypto is still tiny and crypto’s integration into broader financial markets is still tiny,” said James Malcolm, head of FX strategy at UBS at the moment. “The sale has roughly halved the global market value of cryptocurrencies since November, but the drawdown has turned into panic in recent sessions with the pressure on stablecoins. Stablecoins are tokens tied to the value of traditional assets, often the US dollar, and are the primary medium for moving money between cryptocurrencies or converting balances into fiat cash. Cryptocurrency markets were rocked this week by the collapse of TerraUSD (USDT), which broke its 1:1 peg to the dollar.
TerraUSDtraded15 cents
The coin’s complex stability mechanism, which involved balancing with a free-floating cryptocurrency called Luna, stopped working when Luna came under selling pressure. TerraUSD last traded around 15 cents while Luna plummeted to near zero. Tether, the largest stablecoin and one whose developers say it’s backed by dollar assets, has also come under pressure, falling to 95 cents on Thursday, according to CoinMarketCap data, but was back up to $1 on Friday. Over half of all bitcoin and ether traded on exchanges are compared to stablecoins, with USDT or Tether taking the largest share,” analysts at Morgan Stanley said in a research note. For these types of stablecoins, the market must have confidence that the issuer holds sufficient liquid assets that they could sell in times of market stress.”
Tether’s operating company says it has the necessary assets in government bonds, cash, corporate bonds, and other money market products. But Tether is likely to face further tests as traders continue to sell, and analysts fear stress could spill over into money markets as pressures force more and more into liquidation. Rating agency Fitch said in a note on Thursday that there could be “significant negative impacts” on cryptocurrencies and digital finance if investors lose confidence in stablecoins.
“Many regulated financial firms have increased their exposure to cryptocurrencies, defi and other forms of digital finance in recent months, and some Fitch-rated issuers could be impacted if crypto market volatility turns severe,” it said. However, Fitch said that weak links between crypto markets and regulated financial markets will limit the potential for crypto market volatility to cause greater financial instability.
READ ALSO : Musk puts $44 billion Twitter deal on hold as stocks plummet
